Facebook Makes Profit but Stock Tumbles

Facebook’s quarterly earnings revealed growth, but that wasn’t enough to maintain the numbers at the stock market, which fell by 11 percent right after the earnings were announced. This is the lowest that the company had witnessed ever since it has come in public offering following May.

The plunge clearly defines that despite good earnings, Facebook was unable to earn confidence of investors as far as its stepping in a particular type of business model is concerned. Not only Facebook but other companies who were dependent on Facebook for sales also witnessed a dip in their stocks.

In its present quarterly earnings, Facebook revealed that it sales have increased to $1.18 billion, more than what was expected. In this quarter, the company had spent three times more than what is spent last year, in order to expand its business.

Facebook’s chief executive Mark Zuckerberg now intends to step into mobile advertising, that too in a way. He and other executives cleared this intention on a conference call made on the occasion. The company is of the view that mobile industry is big and growing and Facebook wishes large profits from it in the future. But the only problem that the social networking will face is that of generating revenue as all its income comes from display ads, which are viewed largely on desktops or laptops.

“Our vision for platform is bigger than most people perceive,” Zuckerberg said. “I think we’re really much closer to the beginning here than the end in terms of what we can do.”

As a solution to this problem, Facebook executives are planning to put advertisements in users’ news feeds and then see how users will react to it. But the analysts are of the view that viewers will not be happy with the idea of watching advertisements on their mobile screens.

“I don’t think Facebook gets it,” said Donna Hoffman, a marketing professor at the University of California at Riverside. “They are one of the most reactionary tech companies I have ever seen. They’re not proactive, barely responsive and not in tune with the zeitgeist or needs of their own consumers.”

Nevertheless, analysts are of the view that Facebook is just a trend and probably will just pass out with time. But Zuckerberg denied the notion stating that Facebook has noticed solid growth rates in the past and that it is one of the most popular app on mobile phones.

Zuckerberg said nothing about the company’s future plans but the nullified the rumors that company is planning to build its own mobile phone. “Building out a whole phone would not make much sense for us to do,” he said.

Zuckerberg clarifies that Facebook, as a company depends on its apps partner such as Zynga for a brighter future. But the fact is that these partners are also bearing losses.

Facebook did not say anything on what are its expectations for the next quarter.

“Revenue growth is harder to predict, and it’s particularly hard to predict when you’re launching a new product,” said Chief Financial Officer David Ebersman.

Despite all, one fact is that Facebook has a good number of users, which are growing day by day. “Advertising dollars follow eyeballs,” said Arvind Bhatia, an analyst with Sterne Agee. “Facebook is a long-term opportunity.”

In its second quarter earnings, Facebook has listed a loss of $157 million, or 8 cents a share, compared to a profit of $240 million, or 11 cents a share, which company posted last year at the same time. Overall, the company has lost $743 million on operations spending, for a 63 percent loss. Facebook has $10.2 billion in cash and investments on its balance sheet.